When locating private monies for your multi unit deals, there are the four key elements of being successful: Predisposed investors, control, low risk and high return. However, there is another element to making your hunt for finding investors successful. This fifth component is called the strategy of pre-eminence.
Think of the strategy of pre-eminence as you would The Golden Rule: “Do unto others as you would have them do unto you.” It is really that simple. You take a pre-eminent position and treat every client as you would like to be treated. This means that you have a vested interest in what type of deal they are looking for.
This strategy begins with being sure to refer to your investors as “clients” as opposed to “customers”. Client denotes someone you are going to look after in the long run while customer denotes a one-time transaction. Client is a long-term relationship.
Your private money sources are your clients for your multi unit deals. You are creating investment products for them. They expect to receive benefit from that. Because you want to have a long-term relationship with them, you treat them as a client.
Think of it this way: you are a customer at the chain jewelry store. You are just a nameless face among thousands there. No one there has a vested interest in finding out what your needs are and what they can do for you. However, if you go to your local jeweler, they will treat you as a client. They will get to know you on a personal basis and work for your repeat business.
This means that you look after them; you think like they would. You try to put yourself in your client’s shoes and look out for his or her best interest. Honesty is always the best policy. If you fudge on giving the details of a multifamily property to your potential investor, not only do you risk losing them but you risk destroying your reputation that you have built thus far.
Remember, referrals are the backbone of your multi unit business. You cannot build up your list of credible and trustworthy references if you develop a reputation for not being an honest person to deal with.
Your ability to establish a relationship of trust, reliability and integrity is the foundation for a relationship that will be mutually beneficial in the long run. The strategy of pre-eminence opens the door for you to garner stellar word-of-mouth referrals from your clients.
You’ve probably heard that if you fail to plan then you plan to fail. That’s good advice, especially when it comes to buying apartment buildings for sale.
Planning is the key to success in any business and it’s no different in the multifamily investing business. I’m going to show you how to create a super-simple business plan based on my own business plan.
Now, I should tell you first tell you that there really are two different kinds of business plans. One is the kind you use to present to potential investors if you are looking for capital, or the bank if you are going after a loan. It’s clean and polished and looks pretty. That’s not the kind I’m talking about.
The other kind is a down-and-dirty, roll-up-your-sleeves, dog-eared document that you pull out every single day and review. (After a while, you’ll be so familiar with it that you will pull it out every other day, then every other week, and soon you will know it by heart, as I do). It’s what I call a “living document” because you’re always in it, always changing it, and making it useful to you. No one else will see it and you’ll use this plan to drive your business.
A business plan should be a document where, if you were to wake up with total amnesia one morning, your spouse could say to you “you are a successful apartment building investor and this is the step-by-step plan of what you’ve done”, and then you go out there and repeat the same success. So your business plan should be useful, user-friendly, and enjoyable to interact with. (Unfortunately, too many people think that their business plan needs to the be the first kind – the polished kind – so it sits on a shelf and collects dust). You can create it on your computer, print it out, and carry it with you, making notes and updating it regularly.
So, what does your plan include? Well, mine includes the three main activities I perform: Acquire, Operate, and Improve. I started by writing one page for each step with ideas and best practices and reminders to myself, all in a step-by-step format. “Acquire” is about finding multifamily apartment buildings and determining my exit strategy; “operate” is about running them, “improve” is about making them better.
As my business grew and my processes developed, I began to hone my plan. I aggressively modified each one the things I learned from every new investment. Today, my plan’s structure isn’t that different from my early days when I performed those three tasks, but you can be sure that each of those steps is tightly defined and rich in value. If I were to suddenly lose everything I had, that plan would still be worth millions to me.
Under each of the three headings I include the steps around what I do, where I do it, how long it should take, who I work with, what my intended outcomes are, and what happens if things go off the rails. It’s in a step-by-step format so that I can simply follow step one, step two, step three, etc. Of course, I rely on my instincts and bank of experience but this plan makes sure it gets done. But I’ve added a fourth heading – teach.
Today, I not only acquire, operate, and improve multifamily investments, I also teach others how to do the same. Your plan will probably start with the first three and you might find in time that it may grow to include the fourth as well. But you need to start somewhere. So start with a 3 point Acquire, operate, improve business plan and make it the most valuable pieces of paper you own.
The very simple law of manifestation summarizes how we manifest everything in our life. It is not how we are taught in school. The law of manifestation can be summed up in the acronym TFARB.
TFARB stands for Thoughts, Feelings, Actions, Results and Beliefs.
Our thoughts are the key to everything we do. These thoughts then lead to our feelings. Our feelings then translate into actions. Of course, actions yield results and our results impact our belief systems. Everything that we absorb from our environment is filtered through our belief systems.
Our thoughts are triggered by our belief systems and what is happening in our surrounding environment. For example, let us say that you are watching CNN and you are absorbing all of the words of doom and gloom about the economy. You then start asking yourself, “What’s going to happen to me?” and “What am I going to do?”
Those thoughts then become a part of your belief system and you take on the victim mentality. You start to believe that you are not in control. These thoughts then trigger the feelings of helplessness and the feelings of a lack of control of what happens to you.
This feeling of a lack of control in turn freezes your actions. You shut down and freeze up. You switch into survival mode. You hunker down and wait for something to happen. The results you are going to get are going to be the result of something is going to happen to you. And that is going to feed on itself even more.
Here is the positive side to all of this. You are free to choose your own belief systems. Beliefs are not right or wrong. They are not true or false. Beliefs are, however, supportive or non-supportive of the results that you want in your life.
You need to choose your belief systems wisely because that is where your financial destiny begins. You want to choose beliefs that are going to empower you. You need to ask yourself what beliefs you have that are going to support you in having the thoughts, and feelings that will allow you to conduct the actions that give me the goals that you want for yourself.
If you want $1 million this year, then that is your goal. If, however, you have a belief system that thinks you are not worthy of that goal, then you have sabotaged yourself and set yourself up for defeat before you have even started.
The law of manifestation can help you to take inventory of your belief systems and to check your negative thoughts at the door. The key to your success and your ability to achieve your goals can be tied directly to your Thoughts, Feelings, Actions, Results and Beliefs.
Everyone needs to have goals. When it comes down to your goals, not only is it important to write them down, but you need to be able to visualize them as well. A vision board can assist you in keeping your goals in front of you.
Once you set your goals for the year, you need to cut out images or download images from the internet and put them on a board. You can collect pictures out of a magazine or even take your own pictures. Perhaps you have a dream home as a goal. Take a picture of that dream home and include it on your Vision Board.
Your Vision Board does not have to be anything fancy. A simple poster board that you buy at your local store will do the job just fine. Whatever you decide to use, you need it to be something that you can capture your images on. You will be continually referring to it to remind yourself of what it is that you are working towards.
You need to plant your goals in your subconscious so that these goals manifest themselves and become reality in your mind. You are going to keep on planning on how to reach your goals and your subconscious cannot tell the difference between what is real and what is not real. What is in your subconscious will then allow your thoughts, feelings and actions to get results.
The Vision Board is not the only thing that you have to do. There is action required on your part, but the vision board will allow you to implant on your subconscious those things we need so that your subconscious will not be a hindrance to your achieving those goals. The Vision Board allows you to take action.
Say for instance that you want to own a Ferrari. Go down to the Ferrari dealer, sit in a Ferrari, and have someone take a picture of you in it and put that on your vision board. The more you can personalize a goal and make it almost tangible, the more you are going to make that goal a reality in your subconscious.
Goals are what motivate and inspire us to accomplish what we desire. Our senses play an important role in helping implant things in our subconscious. A Vision Board helps to harness the visual aspect of our goals and encourages us to press forward and achieve those goals.
Let’s do some more myth busting. (Keep in mind that the more prevalent these myths are, the less competition there is).
Besides not needing big cash – or any cash – to be an apartment entrepreneur, you can do it on a part-time basis. Just like I did when I was starting out.
In fact, multifamily is much easier than single family.
You might be saying, “Whoaaaaa. How can that be?” Let me explain.
Finding, qualifying and analyzing apartment deals is all about the numbers, the financials. These deals are based primarily – if not exclusively – on the financial performance. Hence, we can evaluate these deals without first having to see them.
Let me say that again.
Because the apartment value is driven by the financial performance, you can evaluate apartment deals without first having to see them.
Yes, you will ultimately look at and inspect these properties but this is NOT a business where the first thing you do is drive across town to check out the color of the carpet and the comps of the neighboring houses.
Evaluating and buying apartments is more akin to buying businesses than buying houses. And if you were buying a business, and a Seller called you, your first reaction would not be to drive across town to look at the lobby. Your first response would be to request a copy of the Profit and Loss Statement.
Well, the same holds true for apartments. Hence, you can evaluate the financial particulars of apartment deals from your home or office – and on a part-time basis. You don’t have to be chained to your car.
You need a calculator, a PC, a phone and 6th grade math skills. (More on that later.)
And with less competition than houses, you don’t have to be worried that the Seller is simply calling every “We Buy Houses” ad in the Sunday classifieds. Finally, you don’t have to slug it out house by house – praying that someone else hasn’t gotten to the house before you have.
This is apartment entrepreneurship – where you are evaluating, buying, flipping and holding apartment businesses.
KEY TAKEAWAY: You can do apartments on a part-time basis. You are evaluating apartment businesses.
Lance
Jon Perry, a student of my Multifamily Apprentice Group, was recently interviewed about closing on a 42 unit apartment building. As a favor to you and me, Jon agreed to share the details of closing his first big ticket deal with everyone.
Listen as Jon shares how he found, funded and closed this bank REO in today’s Perfect Storm of Opportunity.
The very simple law of manifestation summarizes how we manifest everything in our life. It is not how we are taught in school. The law of manifestation can be summed up in the acronym TFARB. TFARB stands for Thoughts, Feelings, Actions, Results and Beliefs.
Our thoughts are the key to everything we do. These thoughts then lead to our feelings. Our feelings then translate into actions. Of course, actions yield results and our results impact our belief systems. Everything that we absorb from our environment is filtered through our belief systems.
Our thoughts are triggered by our belief systems and what is happening in our surrounding environment. For example, let us say that you are watching CNN and you are absorbing all of the words of doom and gloom about the economy. You then start asking yourself, “What’s going to happen to me?” and “What am I going to do?
Those thoughts then become a part of your belief system and you take on the victim mentality. You start to believe that you are not in control. These thoughts then trigger the feelings of helplessness and the feelings of a lack of control of what happens to you.
This feeling of a lack of control in turn freezes your actions. You shut down and freeze up. You switch into survival mode. You hunker down and wait for something to happen. The results you are going to get are going to be the result of something is going to happen to you. And that is going to feed on itself even more.
Here is the positive side to all of this. You are free to choose your own belief systems. Beliefs are not right or wrong. They are not true or false. Beliefs are, however, supportive or non-supportive of the results that you want in your life.
You need to choose your belief systems wisely because that is where your financial destiny begins. You want to choose beliefs that are going to empower you. You need to ask yourself what beliefs you have that are going to support you in having the thoughts, and feelings that will allow you to conduct the actions that give me the goals that you want for yourself.
If you want $1 million this year, then that is your goal. If, however, you have a belief system that thinks you are not worthy of that goal, then you have sabotaged yourself and set yourself up for defeat before you have even started.
The law of manifestation can help you to take inventory of your belief systems and to check your negative thoughts at the door. The key to your success and your ability to achieve your goals can be tied directly to your Thoughts, Feelings, Actions, Results and Beliefs.
The second step in the three step process of contracting and closing a multifamily deal involves composing a letter of intent for the seller. A letter of intent is a principle of understanding. It is a general agreement of what you plan to do so that you know you will not spend a lot of time on a contract.
A letter of intent that is well-written conveys to the seller that you are a serious buyer. The letter of intent basically lays out the terms that both you and the seller agree upon. Not only does the letter of intent show that you are a serious buyer, but it shows that the seller is serious as well.
You know that you are not wasting your time because the seller is telling you that they can agree to the terms in the letter. A contract takes time and legal fees are involved so the letter of intent helps take the uncertainty out of the deal.
The letter should include the price that you agree upon along with the financing terms. For example, if the property is $1.25 million you would include that and then break it down further. Let’s say you are offering $100,000 cash; assuming the first mortgage at 5.06% and you then would like the seller to take a second mortgage of $360,000.
An inspection period, or due diligence, is included within the letter as well as a finance period to raise your financing. Typically, the due diligence period is 45 days and the financing period is 60 days. If you think you will need more time for financing you can increase that period another 30 days.
You also include the amount of earnest money that you are putting forth. A general rule of thumb regarding earnest money is 1%. So if you are doing a $1 million dollar property, your earnest money will be $10,000.
Be sure and play by the rules on earnest money because the seller will be looking at whether that money will make a difference to your or not. If the 1% is a big deal at the moment, find a partner that will put up the money because you do not want to be looking like a non-serious buyer at this point.
The letter of intent is an important part of the three step process because it signals to the seller that you are a serious buyer. Your whole objective is to get the multifamily property under contract because then you control the deal. An effective letter of intent can expedite the whole contracting process.
If you are using a direct mail marketing campaign to reach potential sellers of multifamily properties, you need to have an effective call script in place for when the inquiry calls start rolling in. You need to keep three objectives in mind when speaking with an interested seller. You need to build a rapport, qualify that they are a motivated seller and then qualify if it is a deal.
You can accomplish all three objectives with a simple, 10 minute phone call. The caller will say, “I received a letter saying that you want to buy my property.” The first thing you need to do is to get them to talk about the property. Be sure and repeat their answers because this helps to build a rapport.
To build a rapport, you need to ask at least some of the following questions:
1. How many units is it?
2. How many vacancies do you have?
3. What is the rent?
4. Is it a flat or pitched roof?
5. How long have you owned the property? If they have owned the property for a long time, there may be a lot of equity or it is free and clear and then you can do some seller financing.
6. Where is it located? What is the address?
7. What type of deferred maintenance does it have? You want to find out the condition of the units, roof and foundation.
8. Who manages the property?
That short list of questions should enable you to develop a good rapport. Now you want to find out more about their situation.
The potential seller’s response to the following three questions will tell you if he is motivated to sell or not. You should ask the following questions:
1. May I ask why you are selling? Their response to this question can assist you in how you package your deal to them.
2. Do you know how much you would ask for it?
3. Is your price flexible?
4. Do you owe anything on the property?
Once you have gathered the above information, the seller may ask you to make an offer. You do not want to make an offer. You need to ask to see the financials.
Looking over the financials tells you whether it is a deal you should pursue or not. You should tell the seller that you base your offer price on the income of the property. If possible, have the seller fax you the financials.
Having a call script in place can not only help you get as much information as you can quickly, it can also take the intimidation out of speaking to a potential seller. You will speak to many different types of people but the key is to remember your three objectives of building a rapport, qualifying the seller and then qualifying the deal.
Utilizing the services of a broker can be advantageous for you when you are searching for multifamily properties. The key to working with a broker is to build a relationship and “train” that broker into knowing exactly what you look for in a multifamily property. Here are some tips to guide you in what you say to a broker to find the right properties for you.
When you contact a broker, you need to be very precise in the details that you give him regarding the types of multifamily properties that you are interested in. You are basically “training” the broker to search for deals that fit your criteria. The more precise and the more knowledgeable you are in the types of property you desire, the more you will convince that broker that you are a serious buyer.
Brokers do not want to waste their valuable time searching for properties if they do not have a serious buyer. They are not going to jump through hoops for someone that comes to them and says “do you have any deals for me?” Certainly they have deals because that’s what their business is all about. Brokers want to know what kind of deals you need.
The first question you need to ask when you find a property that you are interested in and you call the broker whose name is in the listing is whether they are actually the listing broker or if they are just a “recycler”. You need to be sure and get to the listing agent so you can get all of the particulars of the deal.
Once you are speaking with the listing agent, here are some examples of precise information that you can give to him to show that you are a serious buyer:
1. I’m looking for Class C properties.
2. I’m looking for “X” number units (this can be 10-50 or 50-200, whatever the case may be).
3. I’m looking for properties that are less than $25,000 per door.
4. I’m looking for properties that have value plays.
5. I’m not opposed to rehabs.
The criteria listed above would be enough to show any broker that you are a serious buyer and you know exactly what you want.
If a broker asks you where your funding is coming from you can reply “I represent a group of private investors and we get our down payment from private sources.” Another possible response is “We have a syndicate of partners that provide the down payment.” You could also just simply say, “I’m a serious buyer and I have the wherewithal to do these transactions and I’m looking to build up a relationship with someone who has deals for us.”
The important thing to remember when you are dealing with a broker is that you need to be educated on the types of properties that you are looking for. You need to be able to communicate to the broker that you are a player. If you implement the preceding tips, you will be able to communicate effectively and confidently with brokers.
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